Feature Supply chain
Could blockchain change the face of global trade?
Blockchain technology has taken many industries by storm, with everyone from financial firms to charities jumping on the bandwagon. Eva Grey considers the technology’s potential for shipping and asks how it could improve efficiency and security in global trade.
Feature
Supply chain
Could blockchain change the face of global trade?
Blockchain technology has taken many industries by storm, with everyone from financial firms to charities jumping on the bandwagon. Eva Grey considers the technology’s potential for shipping and asks how it could improve efficiency and security in global trade.
First launched in 2009, blockchain gained notoriety as the technology that makes bitcoin transactions possible. In recent years however, it has spread beyond the crypto-currency realm, to become synonymous with an effective, transparent and cyber-secure data sharing platform for companies and individuals.
Naturally, financial institutions were the earliest adopters. Last year, a study by Greenwich Associates reported that the sector was expected to invest $1bn in blockchain initiatives and projects. At the start of this year, the Bill & Melinda Gates Foundation announced plans to use blockchain to help the two billion people worldwide who don’t have bank accounts.
When it comes to shipping, the solution has the potential to save the industry billions of dollars, according to IBM and Danish transport and logistics firm Maersk. In June, the two companies announced a partnership to use blockchain technology to help transform the global supply chain.
The solution, expected to go into production by the end of the year, will help manage and track the paper trail of tens of millions of shipping containers across the world, protecting the supply chain from human error, wasteful delays, as well as cyber threats.
“We believe that this new supply chain solution will be a transformative technology with the potential to completely disrupt and change the way global trade is done,” said Bridget van Kralingen, senior vice president of industry platforms at IBM. “We’ve long understood the challenges facing the supply chain and logistics industry and quickly recognised the opportunity for blockchain to potentially provide massive savings when used broadly across the ocean shipping industry ecosystem.”
Cutting out paper-based administration
Today, the vast majority of the transactions in the shipping sector are paper-based. In a study carried out in 2014, Maersk found that just a simple shipment of refrigerated goods from East Africa to Europe goes through nearly 30 people and organisations, including more than 200 different communications among them.
The costs associated with the document processing and administration side of things are estimated by IBM to be up to one fifth of the actual physical transportation costs. Not only this, but the paperwork can be delayed, misplaced and altered, causing further problems and mounting costs.
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Marine Transport International estimates that blockchain could save $300 per container in terms of labour and processing associated documents."
Blockchain can counteract all of these issues by acting as a permanent and transparent database, mutually accessible to all parties involved, where transactions are recorded in a way that cannot be undone or changed. This makes possible any type of operation, from the exchange of sensitive documents, such as contracts, to the transfer of money.
Marine Transport International estimates that blockchain could save $300 per container in terms of labour and processing associated documents. For one ultra large container ship, which carries up to 18,000 containers, the savings amount to $5.4m.
It can also help with cyber security. In June, Maersk was one of the victims of a global ransomware attack, which caused outages at its computer systems across the world and cost the company $300m in lost profits in the third quarter of this year.
In the wake of the attack, TrustMe managing director Antony Abell argued that blockchain could have prevented the attack from happening. Despite the recent partnership with IBM, Maersk’s blockchain capabilities are not yet fully fledged.
Testing blockchain for the shipping industry
The collaboration between Maersk and IBM will see the two giants work within a network of shippers, freight forwarders, ocean carriers, ports and customs authorities to build the new global trade digitisation product, according to the companies.
This partnership was recently revealed to reach even further, after IBM signed a memorandum of understanding with ocean shipping carrier Pacific International Lines and port group PSA International, two of Singapore’s key traders. This marks a huge step: Pacific International Lines represents the 12th largest container shipping company in the world, while the port group handled 68 million twenty-foot equivalent units in 2016.
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The Port of Rotterdam, Europe’s largest shipping port, is taking part in its own logistics consortium that will test sharing information via blockchain over the next two years."
A number of other, separate trials have already helped make the case for blockchain technology in shipping.
Damco, Maersk’s supply chain solutions company, shipped flowers from Kenya, oranges from California, and pineapples from Colombia to the Port of Rotterdam, logging the shipment transactions via blockchain.
The Port of Rotterdam, Europe’s largest shipping port, is taking part in its own logistics consortium that will test sharing information via blockchain over the next two years.
Similarly, the neighbouring port of Antwerp in Belgium has partnered with tech firm T-mining to work on a pilot project using blockchain technology to make container handling more efficient and secure.
EU-funded project SmartLog also demonstrated the technology in June at Estonia’s largest cargo port, Muuga Harbour, when the journey of ten sea containers was tracked and shared through data points submitted into the blockchain database by ten different companies.
IBM and Maersk have partnered to trial blockchain technology in shipping.
Huge potential, but challenges remain
Right now, blockchain applications in shipping are in the early stages.
Writing for risk management company Marsh’s latest report ‘The Edge of Risk’, CEO of Marine Transport International Jody Cleworth highlighted remaining fears, such as the fact that blockchain could “dehumanise the process of buying, selling and perhaps operating”.
While this is less likely to stand in the way of widespread adoption, care must be given not to create social economic issues in developing countries where jobs might be replaced by automation, Cleworth argues.
Sharing data unreservedly is also something that still makes many companies feel apprehensive, which might limit blockchain’s popularity.
Indeed, challenges still remain, and blockchain technology, as revolutionary as it is poised to be, needs to be fully understood and proven before we can expect wide-scale adoption. But so far, the benefits seem to be speaking for themselves.
Featured image courtesy of Maersk
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